Photo: Chris Higgins, Hendersonville NC.
Recent company failures and layoffs will likely have people second guessing their commitment to the agtech movement and possibly controlled environment agriculture (CEA).
The past 15 years of my career have seen a rollercoaster of interest in my chosen industry. In the 2000s, the Canadians and Mexicans drove investments as they rapidly expanded to give U.S. consumers year-round access to greenhouse-grown tomatoes.
Then, starting between 2010-2015, vertical farmers and greenhouse leafy greens producers again jumped at the opportunity to rapidly scale new ideas as consumers demanded locally grown options. Also, investors (flush with cheap capital) enabled rapid development of new start-ups.
The years 2000-2021 were also a very good time to be a cannabis grower as laws changed and investors took interest and advantage of legislative changes by quickly setting up growing facilities that spared no cost.
And finally, from 2020-2022, ornamental growers benefited from a seismic shift in consumer activity as people stayed home (from work and vacations). They focused on beautifying their home spaces and discovered new interests in gardening and landscaping.
When did they start?
Priva was founded in 1959.
Hydrofarm was founded in 1977.
Village Farms was founded in 1989.
Aerofarms was founded in 2004.
Hort Americas was founded in 2009.
Gotham Greens was founded in 2009.
Plenty was founded in 2014.
Little Leaf was founded in 2015.
AppHarvest was founded in 2017.
With all this activity, one fact is certain: Business people from all industries tried to join the excitement. They deployed capital and that capital inspired engineers. Those engineers then looked for (and continue looking for) opportunities to solve problems.
Yet like all business cycles, opportunities shrink, people lose their jobs and investors lose money. This often occurs because much of the hype is not real or capable of creating a solid foundation for growth.
Some of this is also driven by people not understanding our industry (which is nothing new), its problems and the amount of money existing industry players can afford to pay for creative solutions to their problems.
Yet, just like other cycles, outside interest in our industry has created some amazing companies. Some of them will go on to be widely successful. Others will fail — but necessarily because of their ip, products or services. What they offered will be picked up by new investors and relaunched with different degrees of success. And many of these successes will fill industry needs, including in natural resource conservation, labor management and energy management.
Now, many of you know me. You also know that I am friends with a number of people who created and operated both the “innovative” farms and advanced agtech companies. Many are quick to point out their failures due to the layoffs, poor stock performance and door closures. As a result, this leads you to ask me questions such as, “Why are these farms and companies closing?”
I wish I could give a simple answer. But as with most issues that matter, the real answers are not simple, and the simple answers fail to address the real problems.
Why are doors closing?
In general, most farm failures and issues can be summarized under operational issues. Some forget that regardless of the technology used, these businesses are still farms. Farms that must operate and compete in a market with notoriously low profit margins and cutthroat competition. Operational excellence and a conservative fiscal focus are not necessarily issues that can be solved by technology. (Technology can assist experienced managers, but it can not provide managers experience.)
Operational factors such as labor, efficiency and quality are all areas that technology can help improve. But in the wrong hands or at the wrong price, technology can also create bigger problems by increasing burn rate in new businesses and putting considerable pressure on new ideas.
In other words, AI is already used in our industry. The degree to which we use it is now being explored. But, AI itself will not solve the issues farmers deal with on a daily basis. In fact, used improperly, the additional cost of AI may cause certain farms to fail much faster because it can increase costs with no positive offsets.
What does this mean for our industry?
Failures are a part of business. Nearly 1 in 5 U.S. businesses fail within the first year, according to the latest data from the U.S. Bureau of Labor Statistics. And while these businesses fail for a variety of reasons, the top reason startups go under is due to misreading market demand — a mistake found in 42% of cases.
I think this is especially true in the world of modern commercial horticulture and agriculture. These are mature markets which (as stated before and cannot be stated enough) historically operate on razor-thin margins. Many underestimate how farmers learned to do so much with so little. They also underestimate how hard it is to sell produce, get shelf space and maintain that market position.
Most importantly, however, people don’t understand the real scale that even “family” farms operate at. Agriculture is one of the world’s oldest industries. It has seen new trends, innovated and adapted to change for centuries. A few failures in the world of agtech will not have a major impact on the industry.
Looking for agtech? Watch for their pitfalls and know what questions to ask.
- Which systems are proven to be compatible with new tech?
- Which crops are the tech proven on and in what climate conditions?
- How much does the new tech cost to implement?
- Know the internal labor cost vs savings, as well as potential cost.
So many new ideas and technologies
As I left Greentech in Amsterdam this past summer, a valued customer told me, “There is so much cool stuff in there. Too bad I cannot afford any of it.” This is such a true statement.
Tradeshows and industry fairs are filled with all the newest tech and gadgets — some proven and many unproven. Manufacturers and vendors search for farms to buy their technology, so they can prove it on a commercial scale. This can lead to dangerous scenarios for both farms and factories. Tech providers can assume that every farm operates the same as their client(s). As a result, farms can sacrifice valuable production space to a technology that does not provide the equal amount of value to each partner (depending on the contractual agreements).
This has led some tech companies to build their own farms. It’s also where I believe the biggest problems occur. Investors back inventors to build farms to prove out their tech. Many of these business models then expect the farm to turn a profit after developing and deploying their proprietary technology — but this is not as easy as it seems. Not only is rolling out and developing technology an expensive process, it’s highly unlikely that one farm can cover these costs by selling crops that have historically low profit margins.
For those taking capital from investors, remember not all capital is the same and it all comes with expectations.
For those looking to invest in farms, remember not everything can be solved with technology. Farming is filled with thousands of examples of technology that all produces the “same products” profitably and successfully.
The reality is, Agtech, AI and robotics in commercial horticulture and agriculture are here to stay. A few failed start-ups will not change this. What remains to be seen is, which companies will win the race to dominate the future of agriculture? What we know for sure is, at least 20% of the new companies formed over the past 2-5 years are destined for failure.
Conclusion: AI and robotics have a role in the future of CEA.
Both are already being used in farms at multiple levels.
The truth is that the future has not been defined yet.